Japan GDP shrinks 1.8 in first quarter

Japan GDP shrinks 1.8 in first quarter


Private consumption, which accounts for more than half of Japanese economy, fell 0.7pc

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TOKYO (Reuters/Web Desk) – Japan's economy contracted less than initially reported in January-March on upward revisions to capital spending [capital expenditure] and inventory data, lending modest support to the central bank's plans to raise Japanese interest rates again this year.

Capex expenditures (capex) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

Analysts expect the Japanese economy to have bottomed out in the first three months of the year, although a stubbornly weak yen and disruptions at major automaker plants continue to cloud the outlook for the current quarter.

Still, "the revised GDP results made it easier for the Bank of Japan (BOJ) to feel encouraged about future rate hikes as it can assess capital investment is picking up even by a little bit," said Kohei Okazaki, senior economist at Nomura Securities.

Japanese GDP shrank a revised 1.8 per cent annualised in the first quarter from the previous three months, Cabinet Office data showed on Monday, a smaller decline that economists' median forecast for a 1.9pc contraction and a 2.0pc decline in the preliminary estimate.

The revised figure translates into a quarter-on-quarter contraction of 0.5pc in price-adjusted terms, unchanged from the initial reading issued last month.


The revised GDP data comes on speculation the BOJ may discuss cuts in its Japanese government bond (JGB) purchases at its policy review this week as part of efforts to unwind monetary stimulus to curb yen weakening.

Investors are looking for clues on the timing of further Japanese rate hikes by the central bank, which raised rates in March for the first time since 2007 in a landmark shift away from ultra-loose monetary policy.

"We can say capital spending picked up in the latter half of the fiscal year-end in March 2024...current capex conditions are a relief but we must be cautious about the outlook," Okazaki said.

"We can also maintain the view that [Japan household] consumption is on track for recovery due to hefty pay raise agreed at annual labour talks and income tax cuts that kicked in from June."

Private consumption, which accounts for more than half of the Japanese economy, fell 0.7pc in the first quarter, unchanged from the preliminary estimate as rising living costs squeezed household finances. It was a fourth straight quarter of decline.

External demand, or exports minus imports, shaved 0.4 of a percentage point off overall GDP, while domestic demand knocked off 0.1 point, the data showed.